FIFTH DISTRICT COURT OF APPEAL OF FLORIDA HOLDS THAT SUBCONTRACTS CONTAINING MERGER CLAUSES WILL APPLY RETROACTIVELY TO DATE WORK FIRST COMMENCES AND FAILURE TO ADEQUATELY PLEAD DEFENSE RAISING FAILURE TO COMPLY WITH CONDITION PRECEDENT ACTS AS BAR TO THE OTHERWISE VALID DEFENSE

In Don
Facciobene, Inc. v. Hough Roofing, Inc., No. 5D15-1527, 2017 WL 3091578
(Fla. Dist. Ct. App. July 21, 2017), the Fifth District Court of Appeal of
Florida held that although a valid merger clause in subcontract signed after the
subcontract was almost completed, it applied retroactively to the date work
first commenced. However, the Court held
that failure by general contractor to plead an affirmative defense regarding a condition
precedent in the subcontract with enough specificity and particularity as
required under Florida Rules of Civil Procedure barred it from relying
upon what otherwise would have been an enforceable provision of the subcontract
and, thus, the general contractor was required to pay the subcontractor in full.

Don Facciobene, Inc. (DFI) was hired to complete renovations
on a historic home. Part of its work included replacing the roof. DFI subcontracted
the roofing work to Hough Roofing, Inc. (HRI). HRI provided an estimate and
proposed statement of work to DFI in mid-March 2011. DFI's project manager signed
HRI's proposal on April 5, 2011, as well as an additional expanded proposal on
April 11, 2011. The proposals stated that payment was due on completion. HRI
began work on the roof on April 15, 2011. However, the parties did not actually
sign the subcontract until June 8, 2011, and, by that time, the project was
nearly complete.

Per the subcontract, rather than being paid upon completion,
HRI was due progress payments for work completed on a monthly basis, with final
payments due thirty days after completion. The subcontract also imposed several
conditions precedent to obtain progress payments and final payments, including DFI
obtaining full payment from the Owner for work completed. HRI had mostly
finished its work by the end of May 2011, and on June 8, 2011, it submitted its
first “final” invoice for $22,370. Due to disputes over some of HRI's charges,
DFI never paid HRI anything for its work even though it received payment from
the Owner for the roofing work on July 15, 2011.

The trial court found that because the parties had not signed
the subcontract until June 8, 2011, at which point in time HRI's performance
was more than ninety percent complete, HRI was not required to retroactively apply
the language of the subcontract to any work performed prior to that date. It
therefore entered judgment in favor of HRI and ordered DFI to pay HRI for all
work performed. DFI appealed the
judgment, arguing that the trial court erred in not retroactively applying the
terms of the subcontract and barring recovery by HRI due to noncompliance with
the conditions precedent to receive progress payments and final payment.

The Court of Appeal agreed with DFI that the trial court
erred in failing to apply the subcontract retroactively. It held that because
the fully executed subcontract contained a merger clause, HRI agreed to be
bound to the terms of the subcontract for all work completed, even prior work.
Despite coming to this conclusion, the Court of Appeals nonetheless concluded
that regardless of whether or not HRI had complied with the conditions
precedent agreed upon, DFI was estopped from raising this argument and HRI was
due payment in full.

In reaching this outcome, the Court determined that DFI had
failed to properly preserve its right to demand proof that HRI complied with
the conditions precedent to progress payments and final payment as required
pursuant to Florida Rule of Civil Procedure, Rule 1.120(c). Rule
1.120(c) requires a party to provide specific notice of which condition
precedent it claims was not followed and how the opposing party failed to
comply with it. In light of DFI’ failure
to provide adequate notice, the Court held that HRI was entitled to recover the
full amount called for under the subcontract.

This case is important for two reasons. First, in Florida, should
a subcontractor begin work prior to executing a final agreement, and if the
ultimate agreement includes a merger clause, the subcontractor must ensure all
prior work complies with the conditions called for under the subcontract, not
just work completed after the date of execution. Second, this case is a good reminder of the
importance of including specific affirmative defenses in initial pleadings or
shortly thereafter. Failure to do so could result in a party who otherwise may
have a valid defense being precluded from advancing it at trial or on appeal.